For some time it has been well known that any gifts to registered charities are free from inheritance tax if they are made to a UK based charity, whether made during your lifetime or in your Will. It is also known that if the testator leaves 10% of their net estate to charity, the rate of IHT will be reduced from 40% to 36%.

As a result, this has been ideal for IHT planning for clients with sizeable estates.

The Autumn Budget last year announced changes to the inheritance tax position for charitable gifts.

What are the changes?

Absolute gifts to charities that are UK registered will continue to qualify for the 100% inheritance tax exemption.

However, the IHT exemption will no longer apply if the property given is to be held on trust for charitable purposes unless the recipient trust is a registered UK based charity. The effect this has is that gifting to unregistered charities, even if they have a charitable purpose, will no longer benefit from the IHT exemption.

Therefore, where there is a gift made in the Will for charitable purposes to be distributed at the discretion of the trustees rather than specifically gifted to named charities and the testator’s wishes as to which charities or charitable purposes are to benefit are set out in a letter of wishes, IHT exemption will not be available unless the trustees distribute the funds to UK registered charities.

In order to enable the estate to benefit from the IHT exemption, the executors will need to:

1. Distribute the gift to UK charities within 2 years of the testator’s death. This can be achieved either through the Will itself or a variation.

2. Ensure the trust meets the definition of a charity.

What is the Definition of “Charity?”

The Finance Act 2010 (FA 2010) sets out the definition of charity which states that a charity is body of persons or trust that:

- is established for charitable purposes only;

- is subject to the control of the High Court, Court of Session, or High Court in Northern Ireland;

- has complied with the requirement to register as a charity with the Charity Commission (or the Office of the Scottish Charity Regulator or the Charity Commission for Northern Ireland); and

- its managers are ‘fit and proper persons’ to be managers of the body or trust

When will the Changes take effect?

The new rules will apply for deaths occurring on or after 6 April 2026. For any gifts made in lifetime, the changes took effect from 26 November 2025.

What can you do?

We would advise Wills are reviewed where a charitable gift has been included in a Will to check whether the changes set out above are likely to affect the testator.

Article from SWW Membership - legal updates